The helicopter firm, a subsidiary of Italian defence group Finmeccanica, said it had decided to invoke arbitration proceedings as the defence ministry had not responded to its requests for discussions.

India had suspended the contract in February following a kickback scandal, involving a former air chief and several middlemen.

There have been a series of requests for discussions. Regrettably, to date, there has been no response from India's ministry of defence,” a company spokesperson said.

“The ongoing need to resolve this issue has left AgustaWestland with no other option but to invoke arbitration; the next step prescribed by the contract,” he added.

In a related development IAF chief Air Chief Marshal NAK Browne said the air force had informed the government that the existing Mi-8 VVIP chopper fleet of 1970s vintage would be phased out beginning next year.

"So, some decision has to be taken soon on how to move forward. That particular contract (with AgustaWestland) has been frozen with effect from February 1," he said.

India could invoke the integrity pact in the contract to scrap the deal. Under the agreement - a standard clause in all contracts worth more than Rs 100 crore - the bidder commits that bribes will not be offered to influence the deal.

Any violation empowers the government to cancel the contract and recover money already paid along with interest.

This will be the first instance of a military contract being cancelled after deliveries had begun - raising a question mark on the fate of three helicopters already parked in IAF hangars. The choppers could be returned.